I got my first credit card when I was a 19-year-old student, but I wasn't new to credit.
In fact, I had already established a solid credit score and a clear understanding of how to responsibly manage credit cards. I took this for granted at the time, thinking it wasn't that big of a deal, but now I have a much different perspective on things. I realize just how lucky I was.
I had parents who understood the importance of not only teaching me how to manage my personal finances at a young age, but also engaging me in the process along the way. I was expected to work hard, budget, live within my means, and pay my own bills throughout high school. When I was too young to have a credit card, my father added me as an authorized user on his account to help me build a credit profile. And when I was old enough to have my own, he encouraged me to apply for a no annual fee credit card, use it to cover necessary living expenses, and then pay the balance in full each month. I've done that ever since.
So, it should be fairly clear that I'm a huge advocate of young adults learning about responsible use of credit, obtaining a credit card, and building a solid credit history as early as possible. However, new government legislation is going to make that much more difficult for some individuals in the near future. If you're one of them, you'll want to pay attention to the following advice, before it's too late.
1.) CARD Act of 2009 Limits Access to Credit - New Rules May Take Effect Dec. 1st!
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, signed into law by President Obama on May 22nd, essentially bans credit cards for people under the age of 21 unless they have adult cosigners or can prove sufficient income to support the level of credit given. The concept itself isn't such a bad idea, but my concern is that a lot of responsible young adults will find themselves hung out to dry at a time when they need access to credit the most.
What if you have no one willing to cosign? What if your after-scool job at Kinko's pays the bills but doesn't meet the new "sufficient income" requirements? You may be a legal adult, but according to the new laws you're not mature enough to handle a credit card on your own. You'll be stuck with no available credit and no credit score, and that will put you at a significant financial disadvantage in your young adult life.
While the CARD Act is set to take effect in February 2010, there's been a recent push in Congress to actually move the effective date up to December 1st. I happen to doubt that will occur, but it's yet another reason to take note now of how these new changes could affect you in the near future. The bottom line is if you don’t have a credit card by the time the new rules are implemented, you'll have to either beg for an adult's signature or prove you have a job that provides enough income to support a revolving credit line. If you think your personal situation could make meeting these new guidelines difficult, you should apply for a credit card now.
2.) You Need to Build a Credit Score
Don't let credit haters fool you into thinking credit cards are inherently evil and should be avoided at all costs. Credit card DEBT is evil; however, there's absolutely no reason to think you can't responsibly use a credit card without going into debt. With a little knowledge and self control, it can easily be done.
No credit, on the other hand, means no credit score. And that's not a good thing in the world we live in. Financial institutions will always want proof that you can responsibly handle various types of credit including installment loans, mortgages, retail accounts, and credit cards. Employers may be hesitant to hire you if you haven't demonstrated financial responsibility in the past. In addition, landlords, insurance companies, phone companies, and even utility providers may check your credit before choosing to do business with you.
Managing your credit is simply a part of being an adult, so take the time now to educate yourself, play the game, and be a smart consumer. You won't regret it.
3.) There's No Better Time Than Now
Your personal financial life is simpler as a young adult. You may rent an apartment with roommates, or even live at home. Bills should be minimal, and you probably only have to worry about feeding one mouth - your own. Your income may be minimal too, but that doesn't matter. These are perfect conditions for starting your credit history off on the right path.
Get some credit, use it sparingly, pay the balance in full, and be sure to always live within your means. Your credit score will strengthen, and then before you know it the time will come when you need to rely on that score for something that means a lot to you. Perhaps a loan to start your own business or a new home? Getting the best interest rate possible on a mortgage alone will save you thousands of dollars over the term of the loan. All your effort will be well worth it.
I was fortunate to have parents who helped me build a solid credit history at a young age, and it's greatly benefited me in my adult life. Of course, I realize everyone isn't as lucky, which is one reason why I spend so much time and energy building Creditnet.com into the most comprehensive resource online for consumer credit education and product recommendations. There are millions of young adults, perhaps just like you, who feel like they have no one to rely on but themselves when it comes to personal financial matters. And I think that's unfair.
So, my hope is the advice I've provided here will help guide you in some small way to make sound decisions about credit that will brighten your financial future. If you have any questions at all that remain unanswered, please feel free to email them to me at creditcents@creditnet.com. I look forward to hearing from you.
